U.S. CMBS Defeasance Activity 2006 Defeasance has ...
STRUCTURED FINANCE
Special Report
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE AUTHORS: Sandra M. Ruffin VP-Senior Credit Officer (212) 553-4074 [email protected]
G ordon Sinclair Analyst (212) 553-7149
[email protected]
CONTACTS: Tad Philipp Managing Director (212) 553-1992
[email protected]
Brett H emmerling Investor Liaison (212) 553-4796
CONTENTS • Overview • Real Estate Appreciation Remained Strong in 2006 • 2006 Defeasance up 33% over 2005 Levels • Defeasance Study Parameters • Office Represents Largest Share of Defeasance By Balance • Defeased Loans Come in All Sizes • Majority of Defeasance is in Older Vintages • Seasoning Patterns of Defeasance • Credit Impact of Defeasance in Seasoned Pools • Appendixes OVERVIEW
Defeasance has continued to increase significantly year over year since 2003 and has become an important factor in the credit profile of many seasoned CMBS [email protected] actions. This report, Moody's third annual defeasance review, provides an update of cumulative defeasance activity through year-end 2006. In 2006, 2,549 loans totaling $25.9 billion defeased, bringing the total balance of defeased loans outstanding at The authors thank Sally year-end 2006 to $51.2 billion (see Figure 1). Defeased loans now account for G ordon and Oleg B ershadsky for their approximately 17% of the aggregate outstanding CMBS conduit balance (including assistance in the fusion transactions) for transactions issued between 1998 and 2004. preparation of this report Figure 1
Balance and Number of Defeased Loans Per Year
Balance ($ millions)
30,000
3,000
25,000
2,500
20,000
2,000
15,000
1,500
10,000
1,000
5,000
Number
(Based on Loan Balance at Defeasance)
WEBSITE: www.moodys.com
500
-
0 1999
2000
2001 Balance [L]
2002
2003
2004
2005
2006
Number [R]
March 19, 2007
Defeasance continues to be fueled by the surge of liquidity in the commercial real estate markets1 and strong commercial real estate property price appreciation. Although defeasance can be a complex and expensive process - in some cases costing in excess of 20% of the outstanding loan balance-it continues to be an attractive option because it allows borrowers to unlock the embedded equity of their real estate assets and obtain new financing potentially at higher proceeds and with more favorable loan terms. The key findings of this study are as follows: • In 2006 loans totaling $25.9 billion defeased, bringing the cumulative balance of defeased loans outstanding at year-end 2006 to $51.2 billion, up from $29.1 billion at year-end 2005. Defeasance activity in 2006 increased almost 33% over 2005 levels, based on the aggregate dollar balance of loans defeased in each year. • In 2006 the share, by aggregate loan balance, of loans secured by office properties surpassed multifamily and now represents the largest dollar share of defeased loans, at approximately 29%. By loan count, multifamily still represents the largest share of all defeasance, at 39%. • Small balance loans account for a significant share of defeasance, when measured by the number of loans defeased. By number, approximately 54% of all defeased loans are less than $5.0 million in size. However, this subgroup represents only 14% of the aggregate defeasance balance. By loan count, approximately 7% of defeased loans are larger than $25 million, but by balance this subgroup represents 41% of all defeased loans. • The largest share of all defeasance has occurred in transactions issued from 1998 through 2001. Based on balance, approximately 4% of defeased conduit loans are from the 2004 vintage even though 2006 was the first year in which loans from this vintage could defease. • Strong property appreciation and a robust lending environment have made it attractive for even less seasoned loans to defease. By balance, approximately 13% of the loans that defeased in 2006 had only seasoned two years. This compares to 11% in 2005 and 6% in 2004 with a similar degree of seasoning. • Well over 50% of the loans that defeased in 2005 and 2006, which represents approximately 86% of the balance of all defeased loans, had seasoned three to six years prior to defeasing. Based on a number of Moody's delinquency studies, this level of seasoning represents the peak period for default. The substitution of Aaa rated government securities for commercial mortgages in almost all cases produces a meaningful reduction of risk. The benefit is even more meaningful to CMBS credit when loans that are in their peak default period defease and therefore leave the collateral pool.
1
See Moody's Special Report, "US CMBS and CRE CDO 4Q 2006 Review: Rising Tide of Liquidity Lifts all Boats," January 31, 2007.
2 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
REAL ESTATE APPRECIATION REMAINED STRONG IN 2006 The driving force behind the recent surge in defeasance is the underlying strength of the real estate market and borrowers' desire to tap into the appreciated value of their assets. In 2006 we saw continued strong appreciation of commercial real estate values, although the level of appreciation slipped from the record breaking level of 2005. As measured by NCREIF2, real estate capital appreciation in 2006 was 10%, following 12.5% in 2005 (see Figure 2). These two years exhibited the most appreciation for a two year consecutive period for the past thirty years. Figure 2
Real Estate Appreciation 15% 12%
Annual change in value
9% 6% 3% 0% -3% -6% -9% -12% -15% 78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
Annual appreciation Source: NCREIF
Despite the fact that aggregate real estate appreciation was less in 2006 compared to 2005, in 2006 all major property types experienced an increase in value for the third year in a row. Capital appreciation ranged from approximately 7% to 14% in 2006 for each of the major property types. Office and hotel properties experienced greater increases in value in 2006 compared to the previous year (see Figure 3).
2
The National Council of Real Estate Investment Fiduciaries (NCREIF) calculates the total return to real estate, both quarterly and annually. The total return is the sum of a capital appreciation component (represented here) and an income return component.
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 3
Figure 3
Value Appreciation by Property Type (2003-2006)
16% 14% Annual change in value
12% 10% 8% 6% 4% 2% 0% -2% -4% 2003
2004
Multifamily
Retail
2005 Office
Industrial
2006 Hotel
Source: NCREIF
The robust value appreciation of 2005 and 2006 suggests that borrowers experienced faster build-up of equity in their properties compared to previous years and took advantage of defeasance for even relatively "young" loans. All major property types have cumulative two-year value gains of at least 19%, allowing borrowers the opportunity to recover most or all of the equity relatively quickly even in recently purchased properties. When appreciation is viewed over the long term, it does not appear that the accelerated appreciation in 2005 and 2006 is sustainable. Eight of the last 29 years exhibited negative growth. Even setting aside these years of depreciation, historically appreciation has averaged approximately 5% annually. The last two years of appreciation accouts for approximately three to four years at an average annualized pace.
2006 DEFEASANCE UP 33% OVER 2005 LEVELS The tremendous growth of defeasance that CMBS experienced in 2005 continued into 2006. In 2006, 2,549 loans totaling $25.9 billion defeased. This represents a 33% increase over the $19.5 billion that defeased in 2005. Defeasance activity in 2006, measured by balance, represents approximately 49% of the cumulative balance of all defeased loans as of year-end 2006. In fact, the growth of defeasance in 2005 and 2006 was so significant that these two years account for approximately 86% of cumulative defeasance through 20063. The high volume of defeasance during the past several years not only has had a positive impact on the credit quality of seasoned deals, but also affects new CMBS issuance as well. In 2006 defeasance activity averaged approximately $2 billion per month. This is comparable to an entire CMBS transaction being regenerated ahead of schedule. A large portion of defeased loans remain in the CMBS realm.
DEFEASANCE STUDY PARAMETERS Moody's study examines defeasance within the full CMBS universe as of year-end 2006. We have identified 5,502 defeased loans totaling $51.2 billion at year-end 2006 from 320 CMBS pools, including conduits, single borrower and large loan transactions4. As with its previous defeasance reviews, Moody's has examined defeasance by several parameters, including property type, loan size, vintage and seasoning. For most parameters, data is presented by balance, which represents the aggregate dollar balance of defeased loans, as well as by loan count, which represents the total number of individual defeased loans. Observations may differ depending on whether one views a particular item by balance or by loan count. Therefore both mea3
4
The aggregate loan balance of cumulative defeasance through 2006 is not equal to the sum of annual defeasance activity. In both instances the defeasance universe includes all loans that have defeased and are still outstanding, i.e., have not matured or prepaid, at year-end 2006. However, annual defeasance activity is based on the aggregate balance at the time loans defeased. The cumulative balance is based on the aggregate outstanding balance as of year-end 2006 and reflects scheduled amortization after loans have defeased. Data for this study was provided by Commercial Defeasance LLC, Wachovia Securities, Capmark Securities, Inc., Chatham Financial, Bank of America, TriMont Real Estate Advisors, Waterstone Capital Advisors, LLC, Defeasance Group LLC, Capital Defeasance Group and Trepp LLC.
4 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
sures are presented when data is available. In most cases, balance is based on the aggregate year-end 2006 balance. In some instances, however, balance is based on the aggregate balance at the time loans defeased. In both cases, only defeased loans that are still outstanding as of year-end 2006 are included in our analysis. We present our defeasance analysis in several ways. • By share of cumulative defeasance. A specific parameter may be presented as the share it represents of the cumulative universe of defeased loans. For example, when looking at defeasance by property type, loans backed by office properties represent 29% of the aggregate balance of all defeased loans. The cumulative universe of defeased loans includes all defeased loans outstanding as of year-end 2006, i.e., 5,502 loans with an aggregate year-end 2006 balance of $51.2 billion. • By changes in a specific parameter over time. A specific parameter may be viewed in terms of how 2006 differed from prior periods. This is presented in one of two ways. Again using property type as an example, one can look at the share of office loans that defeased in 2006 compared to the share of office loans that defeased in prior periods. Another way to view a trend over time is to index a particular parameter in 2006 relative to that parameter in prior periods. For example, if loans secured by office represent 40% of all loans that defeased in 2006, but 20% of all loans that defeased in prior periods, then office would have an index measure of 200. • By share of the total conduit universe. A specific parameter may be viewed in the context of the total conduit universe. This is presented in one of two ways. For example, one could look at the share of multifamily loans in the total conduit universe that have defeased. Another way to show defeasance in the context of the full conduit universe is to index a particular parameter within the universe of defeased conduit loans to the total conduit universe. For instance, if loans secured by multifamily properties represent 30% of defeased conduit loans but multifamily represents 20% of the total conduit universe, then multifamily would have an index measure of 150. For this analysis, the relevant total conduit universe includes all fixed rate conduit and fusion pools securitized from 1998 through 2004. The outstanding aggregate pool balance as of year-end 2006 for these vintages totals $265.2 billion. The universe of defeased conduit loans from these vintages totals $44.7 billion and represents approximately 17% of all conduit loans. A summary of our analysis is presented in the following sections. More detailed data is provided in Appendix 1.
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
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OFFICE REPRESENTS LARGEST SHARE OF DEFEASANCE BY BALANCE Defeasance activity in 2006 was characterized by a dramatic increase in the share of defeasance of loans secured by office. As a result, office now represents the largest share by balance of all defeased loans outstanding as of year-end 2006. By balance, office, multifamily and retail represent the largest share of cumulative defeasance, at 29%, 26% and 25%, respectively (see Figure 4). If one looks at property type distribution by number of loans, then distribution among property type shifts. Multifamily and retail represent 39.0% and 28.3%, respectively, of cumulative defeasance, while office represents a considerably smaller share, at 18.1%. This reflects the fact that, on average, loans secured by multifamily and retail have smaller dollar balances than loans secured by office. Lodging and industrial properties represent a relatively small share of defeasance, at 8% and 5%, respectively, of the aggregate balance of defeased loans. Figure 4
Distribution of Cumulative Defeasance By Property Type (Based on Year-end 2006 Balance)
Share of all defeased loans
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Office
Multifamily
Retail By balance
Lodging
Industrial
By number
Office and Lodging represent increased share of 2006 Defeasance compared to prior periods
In 2006 loans secured by office properties represented 35% of the aggregate balance of loans defeased in that year, up from 24% in 2005. Property type distribution for 2006 defeasance activity indexed to prior periods is reflected in Figure 5. When viewed by aggregate loan balance, in 2006, loans secured by office, industrial and lodging defeased more frequently than in prior periods. Retail remained flat while multifamily declined. In 2006 multifamily represented 21% of the aggregate balance of loans that defeased in that year, a significant decline from 47% in 2005.
6 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Figure 5
2006 Defeasance Indexed To Defeasance in Prior Years, By Property Type (Based on Year-end 2006 Balance)
160% 140% 120%
Index
100% 80% 60% 40% 20% 0% Office
Industrial
Lodging By balance
Retail
Multifamily
By number
Approximately 21% of multifamily conduit loans have defeased
When defeasance is viewed in the context of the total conduit universe, the property types with the largest share of defeasance, by balance, are multifamily, lodging and office, at 21%, 19% and 17%, respectively. The property type with the smallest share of defeasance is industrial, at 10% (see Figure 6). Property type distribution for defeased conduit loans indexed to Figure 6 the conduit universe is reflected in Figure 7. Multifamily, lodging and office are more frequently represented among defeased Share of Conduit Loans Defeased, loans than they are among conduit loans, at approximately 1.3 by Property Type times for multifamily, 1.2 times for lodging and 1.1 times for Property Type % Balance Defeased office. Retail and industrial are significantly under-represented Multifamily 20.9% relative to the conduit universe. Lodging 18.9% Office 17.1% Retail 12.4% Industrial 10.2%
Figure 7
Cumulative Conduit Defeasance Indexed to Conduit Loan Universe, By Property Type (Based on Year-end 2006 Balance)
140.0% 120.0%
Index
100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Multifamily
Lodging
Office
Retail
Industrial
By balance
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 7
DEFEASED LOANS COME IN ALL SIZES By balance, the largest share of defeased loans, at 30%, is represented by loans that are less than $10 million in size (see Figure 8). The next largest share is represented by loans between $10 and $24.9 million, at 27%. By loan count, however, approximately 75% of defeased loans are less than $10 million in size. In fact, 21% of all defeased loans by loan count are less than $2 million. It is interesting to note that despite the high costs of defeasance, which includes several fixed cost components in addition to the cost of government securities, cost has not deterred borrowers of small loans from pursuing defeasance. Even small loans, often located in secondary markets, have experienced sufficient appreciation to make defeasance an attractive option in spite of the high cost. Figure 8
Distribution of Cumulative Defeasance by Loan Size (Based on Year-end 2006 Balance)
35%
Share of all defeased loans
30% 25% 20% 15% 10% 5% 0% < $2.0 MM
$2.0-$4.9 MM
$5.0-$9.9 MM
$10.0-$24.9 $25.0-$49.9 $50.0-$99.9 MM MM MM
By balance
8 • Moody’s Investors Service
>/= $100.0 MM
By number
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
A Greater Share of Large Loans Defeased in 2006
In 2006 a smaller share of small balance loans, i.e., less than $10 million in size, and a larger share of large balance loans, loans $50 million or more in size, defeased compared to prior periods (see Figure 9). Approximately 2.5%, by balance, of 2006 defeasance occurred for loans less than $2 million at the time of defeasance, compared to 3.2% for all prior periods. On the other hand, 32% of 2006 defeasance occurred in loans that were $50 million or higher at the time of defeasance, compared to 24% in prior periods. Although 2006 did not experience the defeasance of a $1 billion plus loan, like Rockefeller Center which defeased in 2005, the largest defeasance in 2006 included four loans over $400 million. Not surprisingly, given the significant upswing in the office appreciation, three of these loans were backed by CBD office properties. Figure 9
2006 Defeasance Indexed To Defeasance In Prior Years, By Loan Size (Based on Year-end 2006 Balance)
200% 180% 160% 140% Index
120% 100% 80% 60% 40% 20% 0% < $2.0 MM $2.0-$4.9 MM
$5.0-$9.9 MM
$10.0$25.0$24.9 MM $49.9 MM
By balance
$50.0- >/= $100.0 $99.9 MM MM
By count
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
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MAJORITY OF DEFEASANCE IS IN OLDER VINTAGES Not surprisingly, the majority of defeased loans are in CMBS deals from older vintages. By balance, approximately 88% of all defeased loans are in CMBS deals issued between 1998 and 2003. (see Figure 10) The largest share of defeasance is from the 1998 vintage, at 18%. Loans from the older vintages have had the longest time to benefit from capital appreciation and principal amortization, which increases the attractiveness of defeasance. Figure 10
Distribution of Cumulative Defeasance By Vintage (Based on Year-end 2006 Balance)
30%
Share of all defeased loans
25% 20% 15% 10% 5% 0% 1995
1996
1997
1998
1999
By balance
2000
2001
2002
2003
2004
2005
By number
When defeasance by vintage is viewed in the context of the full conduit universe, it becomes even more apparent that older vintages have experienced greater defeasance. The vintages with the greatest share of defeasance, by balance, are 2000, 1999 and 1998, at 32%, 28% and 26%, respectively (see Figure 11). Distribution of defeased loans by vintage indexed to the conduit universe is reflected in Figure 12. Defeased loans from the 2000, Figure 11 1999 and 1998 vintages are more frequently represented, at Share of Conduit Loans Defeased, approximately 1.9 times, 1.6 times and 1.5 times, respectively. Not by Vintage surprisingly, the more recent vintages of 2003 and 2004 are underVintage % Balance Defeased 1998 26.3% represented since loans from these vintages could not defease until 1999 27.9% 2005 and 2006, respectively, and have not had as much time to 2000 32.2% realize a high degree of appreciation compared to older vintages. 2001 20.8% 2002 18.8% 2003 12.4% 2004 4.4% 1998-2004 16.9%
10 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Figure 12
Cumulative Conduit Defeasance Indexed To Conduit Loan Universe, By Vintages 1998-2004 (Based on Year-end 2006 Balance)
250.0% 200.0%
Index
150.0% 100.0% 50.0% 0.0% 1998
1999
2000
2001
2002
2003
2004
By balance
SEASONING PATTERNS OF DEFEASANCE
The seasoning, or maturity, of loans that defeased in 2006 varied slightly from the previous year5. In 2006, more "young" loans defeased than in 2005. Specifically, approximately one-third of all loans that defeased in 2006 had seasoned either two years (i.e., originated in 2004) or three years (i.e., originated in 2003). In 2005, approximately 25% of all defeasance occurred in similarly seasoned loans (see Figure 13). The fact that more loans defeased with less seasoning in 2006 compared to 2005 emphasizes the recent accelerated appreciation of real estate which has motivated borrowers to unlock their equity as quickly as possible through defeasance. In addition, a number of large portfolio sales occurred in 2006 due to the apparent value differentiation between the private and public markets. Many of the properties involved in these sales were collateral for loans in CMBS securitizations. New owners turned to defeasance to release non-core assets and restructure their newly acquired portfolios. Another interesting area in terms of seasoning is the significant defeasance of "teen-age" loans, which are between three and six years seasoned. Well over 50% of the loans that defeased in 2005 and 2006, which represents approximately 86% of the balance of all defeased loans, had seasoned three to six years prior to defeasing. Based on a number of Moody's delinquency studies6, this level of seasoning represents the peak period for default. The substitution of Aaa rated government securities for commercial mortgages in almost all cases produces a meaningful reduction of risk. The benefit is even more meaningful to CMBS credit when loans that are in their peak default period defease and leave the collateral pool.
5 6
Seasoning analysis focuses on the age of the loan after the two-year lock period during which REMIC rules preclude defeasance See Moody's Special Report, "U.S. CMBS Loan Performance: Impact of Seasoning, Leverage and Location on Probability of Default", November 8, 2004
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
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Figure 13
Distribution of Defeased Loans Per Year By Years of Seasoning In previous two years more loans defeased that would have been in their peak default ages
Share of defeasances in that year
21% 18% 15% 12% 9% 6% 3% 0% 1
2
3
4
5 6 Years of seasoning
Defeased in 2005
7
8
9
Defeased in 2006
CREDIT IMPACT OF DEFEASANCE IN SEASONED POOLS The dramatic growth of defeasance over the past several years has had a significant impact on the credit quality of seasoned CMBS pools. Moody's has identified 13 transactions that are 100% defeased — 9 of which are single asset — and over 90 transactions in which 25% or more of the pool is represented by defeased loans, based on year-end 2006 outstanding pool balance. In many of these transactions, the defeasance collateral is larger than any single property type concentration. Defeasance of one or more large conduit loans can sometimes result in a swift and dramatic improvement in a transaction's credit profile - much like the prepayment of a large loan in a floating rate pool. This is in contrast to potentially incremental improvements in conduit credit due to loan amortization and improved performance of the underlying real estate collateral. Moody's has incorporated the use of a quantitative tool ("Q" tool) portfolio review7 to more efficiently identify significant credit changes in Moody's rated transactions. Moody's will continue to perform full reviews of specific CMBS transactions, but the Q tool review, which we anticipate performing at least semi-annually, will allow us to more quickly take into account dramatic changes in credit such as defeasance and loan paydowns. Defeasance will continue to contribute to Moody's upgrades of seasoned pools. The impact of defeasance in an individual pool varies by the percentage of the pool defeased, the credit quality of the loans being defeased and the performance of the remaining non-defeased collateral.
7
See Moody’s Special Report, “ US CMBS: Q Tool Based Portfolio Review Results in Numerous Upgrades”, August 2, 2006.
12 • Moody’s Investors Service
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APPENDIX 1: SUPPORTING STUDY DATA Table 1
Defeasance By Balance and Loan Count Per Year Year of Defeasance 2000 2001 2002 2003 2004 2005 2006 Missing Data TOTAL*
$ Balance at Defeasance 50,051,145 425,640,766 376,354,719 1,795,351,385 4,618,106,267 19,450,867,908 25,865,842,182
% Balance 0.1 0.8 0.7 3.4 8.8 37.0 49.2
52,582,214,372
100%
No. of Loans 8 25 61 192 647 1,980 2,549 40 5,502
% Loans 0.1 0.5 1.1 3.5 11.8 36.0 46.3 100%
*Data is presented for all defeased loans outstanding as of year-end 2006. Approximately 1.2% of defeased loans are missing data for year of defeasance and/or loan balance at defeasance.
Table 2
Defeasance by Property Type, All Years Property Type Office Multifamily Retail Industrial/Self Storage Lodging Mixed Use Other TOTAL
$ YE 2006 Balance 14,950,501,763 13,501,063,406 12,712,813,203 2,670,674,399
% Balance 29.2 26.4 24.9 5.2
No. of Loans 995 2,143 1,557 411
% Loans 18.1 38.9 28.3 7.5
4,010,152,471 2,936,038,093 368,821,000 51,150,064,335
7.8 5.8 0.7 100.0%
246 107 43 5,502
4.5 1.9 0.8 100%
Table 3
Defeasance By Loan Size, All Years Loan Size ($MM) < $2.0 $2.0-4.9 $5.0-9.9 $10.0-14.9 $15.0-19.9 $20.0-24.9 $25.0-49.9 $50.0-99.9 > $100.0 Missing Data TOTAL*
$ Balance at Defeasance 1,520,873,800 6,006,651,080 8,308,653,820 6,354,472,255 4,451,000,476
%Balance 2.9 11.4 15.8 12.1 8.5
No. of Loans 1,155 1,820 1,166 519 259
% Loans 21.0 33.1 21.2 9.4 4.7
3,907,570,810 8,452,698,948 5,252,312,809 8,326,881,883 1,098,490 52,582,214,371
7.4 16.1 10.0 15.8 0.0 100%
176 246 80 39 42 5,502
3.2 4.5 1.5 0.7 0.7 100%
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
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Table 4
Defeasance By Vintage, All Defeasance Vintage 1995 1996 1997 1998
$ YE 2006 Balance 399,078,430 281,150,890 2,386,972,119 9,295,670,362
% Balance 0.8 0.5 4.7 18.2
No. of Loans 11 22 250 1,142
% Loans 0.2 0.4 4.5 20.8
8,258,228,110 7,517,251,129 7,517,177,735 5,965,449,697 6,328,590,451 3,187,780,969 12,714,442 51,150,064,335
16.1 14.7 14.7 11.7 12.4 6.2 0.0 100%
1,324 893 659 543 473 183 2 5,502
24.1 16.2 12.0 9.9 8.6 3.3 0.0 100%
1999 2000 2001 2002 2003 2004 2005 TOTAL
14 • Moody’s Investors Service
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APPENDIX 2: CMBS TRANSACTIONS WITH 25% OR MORE DEFEASANCE Pool Name F1211 2000-1211 (1211 Avenue of the Americas) MSDWC 2000-1345 (1345 Ave of the Americas) MSDWC 2001-280 (280 Park Avenue) FTST 2000-4TS (Four Times Square) GSMS 2001-ROCK (Rockefeller Center) LTT 1998-1 (Library Tower, Los Angeles) MCMT 1999-C1 (Meristar Portfolio) STARW 1999-C1A (Starwood Hotel Portfolio) CMPTC 1999-ZC1A (Assisted Living Portfolio) NASC 1995-MD3 ASC 1995-MD4 LLL 1997-LLI PMCC2 2000-C1 TOTALS GMACC 1999-CTL1 NASC 1996-MD5 MSC 1997-XL1 ASC 1995-D1 CSFB 1998-C2 GSMS 1998-GLII JPMC 2000-C9 GMACC 1999-C3 CMAC 1998-C2 CSFB 1997-C2 CMAT 1999-C2 GMACC 2000-C1 ASC 1997-D4 BSCMS 2000-WF1 DLJCM 1999-CG3 MSC 1998-XL1 CCMSC 2000-2 FUCMT 1999-C1 DLJCM 1998-CF2 NASC 1998-D6 LBCMT 1999-C1 LBUBS 2001-C7 CSFB 1997-C1 GMACC 1999-C2 CSFB 1997-PS1 CSFB 2000-C1 LBUBS 2001-C2 DLJCM 1999-CG1 CDCMT 2002-FX1 CSFB 1998-C1 CASC 1998-D7 FUNCM 1999-C2 BSCMS 1998-C1 SBM7 2000-C3 COMM 1999-1 GMACC 1997-C2 TRIZE 2001-TZHA DLJCM 2000-CF1 ASC 1996-D3 DLJCM 1998-CG1 ASC 1997-D5 CCMSC 1997-2 GSMS 1997-GL FUNBC 1999-C4
Original Pool Balance $300,000,000 $450,000,000 $269,805,327 $430,000,000 $1,210,000,000 $200,000,000 $330,000,000 $541,328,908 $140,000,000 $534,749,065 $967,185,797 $1,426,717,068 $243,885,659 $7,043,671,824
Pool Balance YE 2006 $293,655,485 $425,311,667 $252,286,200 $403,146,993 $1,159,591,108 $174,905,342 $288,698,500 $457,201,594 $118,857,993 $53,405,555 $314,636,667 $265,907,238 $230,008,169 $4,437,612,510
% Pool Outstanding 98% 95% 94% 94% 96% 87% 87% 84% 85% 10% 33% 19% 94%
$385,982,625 $773,692,578 $754,531,157 $210,875,735 $1,919,275,078 $1,409,152,997 $814,388,116 $1,152,022,048 $2,891,308,796 $1,465,990,190 $775,180,294 $879,890,172 $1,403,292,505 $888,269,750 $899,289,205 $925,848,150 $738,733,448 $1,163,518,250 $1,107,680,439 $3,722,686,278 $1,580,080,849 $1,209,908,176 $1,356,228,736 $974,502,237 $262,057,850 $1,111,999,815 $1,319,080,829 $1,239,717,566 $637,487,900 $2,482,942,306 $1,245,617,634 $1,181,484,821 $714,739,121 $914,661,061 $1,311,153,573 $1,072,702,285 $1,440,000,000 $886,214,012 $782,586,994 $1,564,253,441 $1,785,756,555 $813,992,373 $977,099,000 $885,738,326
$77,033,216 $99,168,726 $306,354,783 $50,573,762 $1,458,450,277 $1,161,322,474 $556,387,802 $874,355,036 $1,759,401,999 $868,469,678 $670,772,784 $734,467,649 $533,867,766 $680,630,324 $754,304,602 $646,329,519 $662,913,211 $862,590,758 $875,443,858 $3,158,065,416 $1,163,524,830 $989,449,899 $352,287,403 $798,259,752 $48,828,737 $972,094,869 $1,190,358,585 $1,004,165,657 $585,994,742 $1,774,847,768 $971,476,101 $887,652,428 $588,567,604 $770,452,194 $1,089,071,166 $325,579,605 $680,406,264 $777,490,122 $259,592,260 $1,077,056,325 $1,279,111,320 $365,512,924 $324,299,107 $684,608,092
20% 13% 41% 24% 76% 82% 68% 76% 61% 59% 87% 83% 38% 77% 84% 70% 90% 74% 79% 85% 74% 82% 26% 82% 19% 87% 90% 81% 92% 71% 78% 75% 82% 84% 83% 30% 47% 88% 33% 69% 72% 45% 33% 77%
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Total Defeasance YE 2006 $293,655,485 $425,311,667 $252,286,200 $403,146,993 $1,159,591,108 $174,905,342 $288,698,500 $457,201,594 $118,857,993 $53,410,564 $314,636,667 $265,907,238 $230,008,169 $4,437,617,520 $64,473,836 $76,589,028 $202,750,000 $31,031,199 $754,506,272 $572,378,359 $273,186,411 $424,666,516 $853,330,127 $418,071,224 $304,324,555 $324,586,286 $227,563,119 $284,432,802 $308,220,788 $255,499,774 $258,032,918 $335,676,294 $332,621,391 $1,193,104,573 $432,254,807 $364,852,105 $129,233,689 $288,379,591 $17,419,205 $337,535,061 $413,054,429 $345,511,818 $200,762,102 $601,592,599 $328,577,655 $299,976,930 $197,864,511 $257,629,016 $359,228,817 $106,925,810 $222,379,955 $251,714,574 $83,572,416 $345,325,740 $406,549,668 $115,590,234 $102,188,015 $213,284,063
% Pool Defeased 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
84% 77% 66% 61% 52% 49% 49% 49% 49% 48% 45% 44% 43% 42% 41% 40% 39% 39% 38% 38% 37% 37% 37% 36% 36% 35% 35% 34% 34% 34% 34% 34% 34% 33% 33% 33% 33% 32% 32% 32% 32% 32% 32% 31%
Moody’s Investors Service • 15
Pool Name GMACC 1999-C1 MLMT 2002-MW1 FULBA 1998-C2 PMCF 2001-ROCK LBUBS 2000-C4 PMAC 1999-C1 HFCMC 2000-PH1 JPMCC 2001-CIB2 CMAC 1999-C1 GSMS 2003-C1 LBUBS 2002-C4 CSFB 2001-CK3 JPMC 1999-PLS1 ASC 1996-MD6 BACM 2003-1 CSFB 2002-CP5 GMACC 2000-C3 GMACC 1998-C2 BACM 2002-2 BACM 2000-1 DLJCM 1999-CG2 FUNBC 2000-C2 DLJCM 2000-CKP1 GMACC 1997-C1 SBM7 2000-C2 COMM 2000-C1 CSFB 1999-C1 CSFB 1999-C1 CMFUN 1999-1 JPMC 1999-C8 FUNBC 2000-C1 BSCMS 2002-PBW1 DLJCM 1998-CF1 GMACC 2002-C1 BACM 2001-PB1 LBCMT 1998-C4 GECMC 2000-1 CMAC 1997-ML1 GECMC 2003-C1 LBUBS 2002-C1 MCFI 1998-MC1 JPMC 2000-C10 BSCMS 1999-C1 GSMS 1999-C1 MSC 1998-CF1 LBCMT 1998-C1 JPMCC 2002-CIB5 TOTALS
16 • Moody’s Investors Service
Original Pool Balance $1,334,328,591 $1,082,600,759 $3,408,048,239 $908,278,773 $999,060,409 $704,764,604 $956,916,240 $961,696,439 $733,801,916 $1,611,350,146 $1,455,238,300 $1,126,966,710 $211,900,044 $895,196,535 $1,132,371,707 $1,185,313,661 $1,318,121,274 $2,530,361,727 $1,744,285,987 $771,922,442 $1,550,432,654 $1,147,819,332 $1,289,918,771 $1,696,984,278 $781,523,168 $897,940,215 $1,170,108,238 $1,170,108,238 $1,397,640,244 $731,516,500 $776,325,806 $921,174,883 $838,800,140 $710,057,789 $938,283,211 $2,025,590,706 $707,331,067 $848,482,929 $1,188,882,058 $1,242,867,925 $1,294,362,625 $740,083,871 $478,003,982 $890,585,735 $1,107,291,368 $1,727,817,629 $1,023,103,976 $106,397,175,110
Pool Balance YE 2006 $1,036,509,457 $992,050,871 $2,151,309,149 $804,249,672 $839,999,273 $510,022,210 $761,637,460 $849,014,198 $557,615,723 $1,550,694,973 $1,358,880,264 $903,207,106 $133,185,546 $323,323,438 $1,075,164,061 $1,099,701,236 $1,196,570,080 $1,900,163,542 $1,647,151,388 $559,222,431 $1,309,510,082 $961,178,971 $990,476,999 $647,887,524 $615,499,473 $738,462,796 $909,891,615 $909,891,615 $1,205,916,502 $490,515,910 $686,069,765 $845,675,570 $625,027,363 $650,143,455 $785,173,245 $1,542,567,588 $571,898,875 $577,614,328 $1,119,154,321 $1,019,055,733 $741,541,772 $599,655,677 $396,096,957 $571,680,887 $569,990,701 $964,350,742 $956,497,913 $78,002,689,859
% Pool Outstanding 78% 92% 63% 89% 84% 72% 80% 88% 76% 96% 93% 80% 63% 36% 95% 93% 91% 75% 94% 72% 84% 84% 77% 38% 79% 82% 78% 78% 86% 67% 88% 92% 75% 92% 84% 76% 81% 68% 94% 82% 57% 81% 83% 64% 51% 56% 93%
Total Defeasance YE 2006 $321,189,796 $306,305,120 $663,630,208 $248,042,655 $258,719,776 $156,826,139 $233,696,829 $259,240,442 $170,237,856 $470,030,492 $409,467,579 $269,976,074 $39,765,488 $95,902,606 $318,814,150 $325,355,101 $352,936,244 $554,834,796 $478,954,676 $161,635,366 $372,248,989 $273,098,134 $274,514,836 $178,537,131 $169,499,473 $201,415,188 $246,870,619 $246,870,619 $324,455,316 $129,678,727 $181,121,465 $222,035,428 $163,231,135 $169,622,766 $204,706,114 $401,737,430 $147,044,906 $146,801,860 $284,352,430 $257,992,901 $187,706,531 $151,313,546 $99,728,438 $143,301,814 $140,772,875 $237,343,053 $235,110,045 $25,803,121,442
% Pool Defeased 31% 31% 31% 31% 31% 31% 31% 31% 31% 30% 30% 30% 30% 30% 30% 30% 29% 29% 29% 29% 28% 28% 28% 28% 28% 27% 27% 27% 27% 26% 26% 26% 26% 26% 26% 26% 26% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 17
Doc ID SF94356 © Copyright 2007, Moody’s Investors Service, Inc. and/or its licensors including Moody’s Assurance Company, Inc. (together, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at www.moodys.com under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”
18 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Special Report
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE AUTHORS: Sandra M. Ruffin VP-Senior Credit Officer (212) 553-4074 [email protected]
G ordon Sinclair Analyst (212) 553-7149
[email protected]
CONTACTS: Tad Philipp Managing Director (212) 553-1992
[email protected]
Brett H emmerling Investor Liaison (212) 553-4796
CONTENTS • Overview • Real Estate Appreciation Remained Strong in 2006 • 2006 Defeasance up 33% over 2005 Levels • Defeasance Study Parameters • Office Represents Largest Share of Defeasance By Balance • Defeased Loans Come in All Sizes • Majority of Defeasance is in Older Vintages • Seasoning Patterns of Defeasance • Credit Impact of Defeasance in Seasoned Pools • Appendixes OVERVIEW
Defeasance has continued to increase significantly year over year since 2003 and has become an important factor in the credit profile of many seasoned CMBS [email protected] actions. This report, Moody's third annual defeasance review, provides an update of cumulative defeasance activity through year-end 2006. In 2006, 2,549 loans totaling $25.9 billion defeased, bringing the total balance of defeased loans outstanding at The authors thank Sally year-end 2006 to $51.2 billion (see Figure 1). Defeased loans now account for G ordon and Oleg B ershadsky for their approximately 17% of the aggregate outstanding CMBS conduit balance (including assistance in the fusion transactions) for transactions issued between 1998 and 2004. preparation of this report Figure 1
Balance and Number of Defeased Loans Per Year
Balance ($ millions)
30,000
3,000
25,000
2,500
20,000
2,000
15,000
1,500
10,000
1,000
5,000
Number
(Based on Loan Balance at Defeasance)
WEBSITE: www.moodys.com
500
-
0 1999
2000
2001 Balance [L]
2002
2003
2004
2005
2006
Number [R]
March 19, 2007
Defeasance continues to be fueled by the surge of liquidity in the commercial real estate markets1 and strong commercial real estate property price appreciation. Although defeasance can be a complex and expensive process - in some cases costing in excess of 20% of the outstanding loan balance-it continues to be an attractive option because it allows borrowers to unlock the embedded equity of their real estate assets and obtain new financing potentially at higher proceeds and with more favorable loan terms. The key findings of this study are as follows: • In 2006 loans totaling $25.9 billion defeased, bringing the cumulative balance of defeased loans outstanding at year-end 2006 to $51.2 billion, up from $29.1 billion at year-end 2005. Defeasance activity in 2006 increased almost 33% over 2005 levels, based on the aggregate dollar balance of loans defeased in each year. • In 2006 the share, by aggregate loan balance, of loans secured by office properties surpassed multifamily and now represents the largest dollar share of defeased loans, at approximately 29%. By loan count, multifamily still represents the largest share of all defeasance, at 39%. • Small balance loans account for a significant share of defeasance, when measured by the number of loans defeased. By number, approximately 54% of all defeased loans are less than $5.0 million in size. However, this subgroup represents only 14% of the aggregate defeasance balance. By loan count, approximately 7% of defeased loans are larger than $25 million, but by balance this subgroup represents 41% of all defeased loans. • The largest share of all defeasance has occurred in transactions issued from 1998 through 2001. Based on balance, approximately 4% of defeased conduit loans are from the 2004 vintage even though 2006 was the first year in which loans from this vintage could defease. • Strong property appreciation and a robust lending environment have made it attractive for even less seasoned loans to defease. By balance, approximately 13% of the loans that defeased in 2006 had only seasoned two years. This compares to 11% in 2005 and 6% in 2004 with a similar degree of seasoning. • Well over 50% of the loans that defeased in 2005 and 2006, which represents approximately 86% of the balance of all defeased loans, had seasoned three to six years prior to defeasing. Based on a number of Moody's delinquency studies, this level of seasoning represents the peak period for default. The substitution of Aaa rated government securities for commercial mortgages in almost all cases produces a meaningful reduction of risk. The benefit is even more meaningful to CMBS credit when loans that are in their peak default period defease and therefore leave the collateral pool.
1
See Moody's Special Report, "US CMBS and CRE CDO 4Q 2006 Review: Rising Tide of Liquidity Lifts all Boats," January 31, 2007.
2 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
REAL ESTATE APPRECIATION REMAINED STRONG IN 2006 The driving force behind the recent surge in defeasance is the underlying strength of the real estate market and borrowers' desire to tap into the appreciated value of their assets. In 2006 we saw continued strong appreciation of commercial real estate values, although the level of appreciation slipped from the record breaking level of 2005. As measured by NCREIF2, real estate capital appreciation in 2006 was 10%, following 12.5% in 2005 (see Figure 2). These two years exhibited the most appreciation for a two year consecutive period for the past thirty years. Figure 2
Real Estate Appreciation 15% 12%
Annual change in value
9% 6% 3% 0% -3% -6% -9% -12% -15% 78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
Annual appreciation Source: NCREIF
Despite the fact that aggregate real estate appreciation was less in 2006 compared to 2005, in 2006 all major property types experienced an increase in value for the third year in a row. Capital appreciation ranged from approximately 7% to 14% in 2006 for each of the major property types. Office and hotel properties experienced greater increases in value in 2006 compared to the previous year (see Figure 3).
2
The National Council of Real Estate Investment Fiduciaries (NCREIF) calculates the total return to real estate, both quarterly and annually. The total return is the sum of a capital appreciation component (represented here) and an income return component.
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 3
Figure 3
Value Appreciation by Property Type (2003-2006)
16% 14% Annual change in value
12% 10% 8% 6% 4% 2% 0% -2% -4% 2003
2004
Multifamily
Retail
2005 Office
Industrial
2006 Hotel
Source: NCREIF
The robust value appreciation of 2005 and 2006 suggests that borrowers experienced faster build-up of equity in their properties compared to previous years and took advantage of defeasance for even relatively "young" loans. All major property types have cumulative two-year value gains of at least 19%, allowing borrowers the opportunity to recover most or all of the equity relatively quickly even in recently purchased properties. When appreciation is viewed over the long term, it does not appear that the accelerated appreciation in 2005 and 2006 is sustainable. Eight of the last 29 years exhibited negative growth. Even setting aside these years of depreciation, historically appreciation has averaged approximately 5% annually. The last two years of appreciation accouts for approximately three to four years at an average annualized pace.
2006 DEFEASANCE UP 33% OVER 2005 LEVELS The tremendous growth of defeasance that CMBS experienced in 2005 continued into 2006. In 2006, 2,549 loans totaling $25.9 billion defeased. This represents a 33% increase over the $19.5 billion that defeased in 2005. Defeasance activity in 2006, measured by balance, represents approximately 49% of the cumulative balance of all defeased loans as of year-end 2006. In fact, the growth of defeasance in 2005 and 2006 was so significant that these two years account for approximately 86% of cumulative defeasance through 20063. The high volume of defeasance during the past several years not only has had a positive impact on the credit quality of seasoned deals, but also affects new CMBS issuance as well. In 2006 defeasance activity averaged approximately $2 billion per month. This is comparable to an entire CMBS transaction being regenerated ahead of schedule. A large portion of defeased loans remain in the CMBS realm.
DEFEASANCE STUDY PARAMETERS Moody's study examines defeasance within the full CMBS universe as of year-end 2006. We have identified 5,502 defeased loans totaling $51.2 billion at year-end 2006 from 320 CMBS pools, including conduits, single borrower and large loan transactions4. As with its previous defeasance reviews, Moody's has examined defeasance by several parameters, including property type, loan size, vintage and seasoning. For most parameters, data is presented by balance, which represents the aggregate dollar balance of defeased loans, as well as by loan count, which represents the total number of individual defeased loans. Observations may differ depending on whether one views a particular item by balance or by loan count. Therefore both mea3
4
The aggregate loan balance of cumulative defeasance through 2006 is not equal to the sum of annual defeasance activity. In both instances the defeasance universe includes all loans that have defeased and are still outstanding, i.e., have not matured or prepaid, at year-end 2006. However, annual defeasance activity is based on the aggregate balance at the time loans defeased. The cumulative balance is based on the aggregate outstanding balance as of year-end 2006 and reflects scheduled amortization after loans have defeased. Data for this study was provided by Commercial Defeasance LLC, Wachovia Securities, Capmark Securities, Inc., Chatham Financial, Bank of America, TriMont Real Estate Advisors, Waterstone Capital Advisors, LLC, Defeasance Group LLC, Capital Defeasance Group and Trepp LLC.
4 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
sures are presented when data is available. In most cases, balance is based on the aggregate year-end 2006 balance. In some instances, however, balance is based on the aggregate balance at the time loans defeased. In both cases, only defeased loans that are still outstanding as of year-end 2006 are included in our analysis. We present our defeasance analysis in several ways. • By share of cumulative defeasance. A specific parameter may be presented as the share it represents of the cumulative universe of defeased loans. For example, when looking at defeasance by property type, loans backed by office properties represent 29% of the aggregate balance of all defeased loans. The cumulative universe of defeased loans includes all defeased loans outstanding as of year-end 2006, i.e., 5,502 loans with an aggregate year-end 2006 balance of $51.2 billion. • By changes in a specific parameter over time. A specific parameter may be viewed in terms of how 2006 differed from prior periods. This is presented in one of two ways. Again using property type as an example, one can look at the share of office loans that defeased in 2006 compared to the share of office loans that defeased in prior periods. Another way to view a trend over time is to index a particular parameter in 2006 relative to that parameter in prior periods. For example, if loans secured by office represent 40% of all loans that defeased in 2006, but 20% of all loans that defeased in prior periods, then office would have an index measure of 200. • By share of the total conduit universe. A specific parameter may be viewed in the context of the total conduit universe. This is presented in one of two ways. For example, one could look at the share of multifamily loans in the total conduit universe that have defeased. Another way to show defeasance in the context of the full conduit universe is to index a particular parameter within the universe of defeased conduit loans to the total conduit universe. For instance, if loans secured by multifamily properties represent 30% of defeased conduit loans but multifamily represents 20% of the total conduit universe, then multifamily would have an index measure of 150. For this analysis, the relevant total conduit universe includes all fixed rate conduit and fusion pools securitized from 1998 through 2004. The outstanding aggregate pool balance as of year-end 2006 for these vintages totals $265.2 billion. The universe of defeased conduit loans from these vintages totals $44.7 billion and represents approximately 17% of all conduit loans. A summary of our analysis is presented in the following sections. More detailed data is provided in Appendix 1.
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 5
OFFICE REPRESENTS LARGEST SHARE OF DEFEASANCE BY BALANCE Defeasance activity in 2006 was characterized by a dramatic increase in the share of defeasance of loans secured by office. As a result, office now represents the largest share by balance of all defeased loans outstanding as of year-end 2006. By balance, office, multifamily and retail represent the largest share of cumulative defeasance, at 29%, 26% and 25%, respectively (see Figure 4). If one looks at property type distribution by number of loans, then distribution among property type shifts. Multifamily and retail represent 39.0% and 28.3%, respectively, of cumulative defeasance, while office represents a considerably smaller share, at 18.1%. This reflects the fact that, on average, loans secured by multifamily and retail have smaller dollar balances than loans secured by office. Lodging and industrial properties represent a relatively small share of defeasance, at 8% and 5%, respectively, of the aggregate balance of defeased loans. Figure 4
Distribution of Cumulative Defeasance By Property Type (Based on Year-end 2006 Balance)
Share of all defeased loans
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Office
Multifamily
Retail By balance
Lodging
Industrial
By number
Office and Lodging represent increased share of 2006 Defeasance compared to prior periods
In 2006 loans secured by office properties represented 35% of the aggregate balance of loans defeased in that year, up from 24% in 2005. Property type distribution for 2006 defeasance activity indexed to prior periods is reflected in Figure 5. When viewed by aggregate loan balance, in 2006, loans secured by office, industrial and lodging defeased more frequently than in prior periods. Retail remained flat while multifamily declined. In 2006 multifamily represented 21% of the aggregate balance of loans that defeased in that year, a significant decline from 47% in 2005.
6 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Figure 5
2006 Defeasance Indexed To Defeasance in Prior Years, By Property Type (Based on Year-end 2006 Balance)
160% 140% 120%
Index
100% 80% 60% 40% 20% 0% Office
Industrial
Lodging By balance
Retail
Multifamily
By number
Approximately 21% of multifamily conduit loans have defeased
When defeasance is viewed in the context of the total conduit universe, the property types with the largest share of defeasance, by balance, are multifamily, lodging and office, at 21%, 19% and 17%, respectively. The property type with the smallest share of defeasance is industrial, at 10% (see Figure 6). Property type distribution for defeased conduit loans indexed to Figure 6 the conduit universe is reflected in Figure 7. Multifamily, lodging and office are more frequently represented among defeased Share of Conduit Loans Defeased, loans than they are among conduit loans, at approximately 1.3 by Property Type times for multifamily, 1.2 times for lodging and 1.1 times for Property Type % Balance Defeased office. Retail and industrial are significantly under-represented Multifamily 20.9% relative to the conduit universe. Lodging 18.9% Office 17.1% Retail 12.4% Industrial 10.2%
Figure 7
Cumulative Conduit Defeasance Indexed to Conduit Loan Universe, By Property Type (Based on Year-end 2006 Balance)
140.0% 120.0%
Index
100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Multifamily
Lodging
Office
Retail
Industrial
By balance
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 7
DEFEASED LOANS COME IN ALL SIZES By balance, the largest share of defeased loans, at 30%, is represented by loans that are less than $10 million in size (see Figure 8). The next largest share is represented by loans between $10 and $24.9 million, at 27%. By loan count, however, approximately 75% of defeased loans are less than $10 million in size. In fact, 21% of all defeased loans by loan count are less than $2 million. It is interesting to note that despite the high costs of defeasance, which includes several fixed cost components in addition to the cost of government securities, cost has not deterred borrowers of small loans from pursuing defeasance. Even small loans, often located in secondary markets, have experienced sufficient appreciation to make defeasance an attractive option in spite of the high cost. Figure 8
Distribution of Cumulative Defeasance by Loan Size (Based on Year-end 2006 Balance)
35%
Share of all defeased loans
30% 25% 20% 15% 10% 5% 0% < $2.0 MM
$2.0-$4.9 MM
$5.0-$9.9 MM
$10.0-$24.9 $25.0-$49.9 $50.0-$99.9 MM MM MM
By balance
8 • Moody’s Investors Service
>/= $100.0 MM
By number
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
A Greater Share of Large Loans Defeased in 2006
In 2006 a smaller share of small balance loans, i.e., less than $10 million in size, and a larger share of large balance loans, loans $50 million or more in size, defeased compared to prior periods (see Figure 9). Approximately 2.5%, by balance, of 2006 defeasance occurred for loans less than $2 million at the time of defeasance, compared to 3.2% for all prior periods. On the other hand, 32% of 2006 defeasance occurred in loans that were $50 million or higher at the time of defeasance, compared to 24% in prior periods. Although 2006 did not experience the defeasance of a $1 billion plus loan, like Rockefeller Center which defeased in 2005, the largest defeasance in 2006 included four loans over $400 million. Not surprisingly, given the significant upswing in the office appreciation, three of these loans were backed by CBD office properties. Figure 9
2006 Defeasance Indexed To Defeasance In Prior Years, By Loan Size (Based on Year-end 2006 Balance)
200% 180% 160% 140% Index
120% 100% 80% 60% 40% 20% 0% < $2.0 MM $2.0-$4.9 MM
$5.0-$9.9 MM
$10.0$25.0$24.9 MM $49.9 MM
By balance
$50.0- >/= $100.0 $99.9 MM MM
By count
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 9
MAJORITY OF DEFEASANCE IS IN OLDER VINTAGES Not surprisingly, the majority of defeased loans are in CMBS deals from older vintages. By balance, approximately 88% of all defeased loans are in CMBS deals issued between 1998 and 2003. (see Figure 10) The largest share of defeasance is from the 1998 vintage, at 18%. Loans from the older vintages have had the longest time to benefit from capital appreciation and principal amortization, which increases the attractiveness of defeasance. Figure 10
Distribution of Cumulative Defeasance By Vintage (Based on Year-end 2006 Balance)
30%
Share of all defeased loans
25% 20% 15% 10% 5% 0% 1995
1996
1997
1998
1999
By balance
2000
2001
2002
2003
2004
2005
By number
When defeasance by vintage is viewed in the context of the full conduit universe, it becomes even more apparent that older vintages have experienced greater defeasance. The vintages with the greatest share of defeasance, by balance, are 2000, 1999 and 1998, at 32%, 28% and 26%, respectively (see Figure 11). Distribution of defeased loans by vintage indexed to the conduit universe is reflected in Figure 12. Defeased loans from the 2000, Figure 11 1999 and 1998 vintages are more frequently represented, at Share of Conduit Loans Defeased, approximately 1.9 times, 1.6 times and 1.5 times, respectively. Not by Vintage surprisingly, the more recent vintages of 2003 and 2004 are underVintage % Balance Defeased 1998 26.3% represented since loans from these vintages could not defease until 1999 27.9% 2005 and 2006, respectively, and have not had as much time to 2000 32.2% realize a high degree of appreciation compared to older vintages. 2001 20.8% 2002 18.8% 2003 12.4% 2004 4.4% 1998-2004 16.9%
10 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Figure 12
Cumulative Conduit Defeasance Indexed To Conduit Loan Universe, By Vintages 1998-2004 (Based on Year-end 2006 Balance)
250.0% 200.0%
Index
150.0% 100.0% 50.0% 0.0% 1998
1999
2000
2001
2002
2003
2004
By balance
SEASONING PATTERNS OF DEFEASANCE
The seasoning, or maturity, of loans that defeased in 2006 varied slightly from the previous year5. In 2006, more "young" loans defeased than in 2005. Specifically, approximately one-third of all loans that defeased in 2006 had seasoned either two years (i.e., originated in 2004) or three years (i.e., originated in 2003). In 2005, approximately 25% of all defeasance occurred in similarly seasoned loans (see Figure 13). The fact that more loans defeased with less seasoning in 2006 compared to 2005 emphasizes the recent accelerated appreciation of real estate which has motivated borrowers to unlock their equity as quickly as possible through defeasance. In addition, a number of large portfolio sales occurred in 2006 due to the apparent value differentiation between the private and public markets. Many of the properties involved in these sales were collateral for loans in CMBS securitizations. New owners turned to defeasance to release non-core assets and restructure their newly acquired portfolios. Another interesting area in terms of seasoning is the significant defeasance of "teen-age" loans, which are between three and six years seasoned. Well over 50% of the loans that defeased in 2005 and 2006, which represents approximately 86% of the balance of all defeased loans, had seasoned three to six years prior to defeasing. Based on a number of Moody's delinquency studies6, this level of seasoning represents the peak period for default. The substitution of Aaa rated government securities for commercial mortgages in almost all cases produces a meaningful reduction of risk. The benefit is even more meaningful to CMBS credit when loans that are in their peak default period defease and leave the collateral pool.
5 6
Seasoning analysis focuses on the age of the loan after the two-year lock period during which REMIC rules preclude defeasance See Moody's Special Report, "U.S. CMBS Loan Performance: Impact of Seasoning, Leverage and Location on Probability of Default", November 8, 2004
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 11
Figure 13
Distribution of Defeased Loans Per Year By Years of Seasoning In previous two years more loans defeased that would have been in their peak default ages
Share of defeasances in that year
21% 18% 15% 12% 9% 6% 3% 0% 1
2
3
4
5 6 Years of seasoning
Defeased in 2005
7
8
9
Defeased in 2006
CREDIT IMPACT OF DEFEASANCE IN SEASONED POOLS The dramatic growth of defeasance over the past several years has had a significant impact on the credit quality of seasoned CMBS pools. Moody's has identified 13 transactions that are 100% defeased — 9 of which are single asset — and over 90 transactions in which 25% or more of the pool is represented by defeased loans, based on year-end 2006 outstanding pool balance. In many of these transactions, the defeasance collateral is larger than any single property type concentration. Defeasance of one or more large conduit loans can sometimes result in a swift and dramatic improvement in a transaction's credit profile - much like the prepayment of a large loan in a floating rate pool. This is in contrast to potentially incremental improvements in conduit credit due to loan amortization and improved performance of the underlying real estate collateral. Moody's has incorporated the use of a quantitative tool ("Q" tool) portfolio review7 to more efficiently identify significant credit changes in Moody's rated transactions. Moody's will continue to perform full reviews of specific CMBS transactions, but the Q tool review, which we anticipate performing at least semi-annually, will allow us to more quickly take into account dramatic changes in credit such as defeasance and loan paydowns. Defeasance will continue to contribute to Moody's upgrades of seasoned pools. The impact of defeasance in an individual pool varies by the percentage of the pool defeased, the credit quality of the loans being defeased and the performance of the remaining non-defeased collateral.
7
See Moody’s Special Report, “ US CMBS: Q Tool Based Portfolio Review Results in Numerous Upgrades”, August 2, 2006.
12 • Moody’s Investors Service
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
APPENDIX 1: SUPPORTING STUDY DATA Table 1
Defeasance By Balance and Loan Count Per Year Year of Defeasance 2000 2001 2002 2003 2004 2005 2006 Missing Data TOTAL*
$ Balance at Defeasance 50,051,145 425,640,766 376,354,719 1,795,351,385 4,618,106,267 19,450,867,908 25,865,842,182
% Balance 0.1 0.8 0.7 3.4 8.8 37.0 49.2
52,582,214,372
100%
No. of Loans 8 25 61 192 647 1,980 2,549 40 5,502
% Loans 0.1 0.5 1.1 3.5 11.8 36.0 46.3 100%
*Data is presented for all defeased loans outstanding as of year-end 2006. Approximately 1.2% of defeased loans are missing data for year of defeasance and/or loan balance at defeasance.
Table 2
Defeasance by Property Type, All Years Property Type Office Multifamily Retail Industrial/Self Storage Lodging Mixed Use Other TOTAL
$ YE 2006 Balance 14,950,501,763 13,501,063,406 12,712,813,203 2,670,674,399
% Balance 29.2 26.4 24.9 5.2
No. of Loans 995 2,143 1,557 411
% Loans 18.1 38.9 28.3 7.5
4,010,152,471 2,936,038,093 368,821,000 51,150,064,335
7.8 5.8 0.7 100.0%
246 107 43 5,502
4.5 1.9 0.8 100%
Table 3
Defeasance By Loan Size, All Years Loan Size ($MM) < $2.0 $2.0-4.9 $5.0-9.9 $10.0-14.9 $15.0-19.9 $20.0-24.9 $25.0-49.9 $50.0-99.9 > $100.0 Missing Data TOTAL*
$ Balance at Defeasance 1,520,873,800 6,006,651,080 8,308,653,820 6,354,472,255 4,451,000,476
%Balance 2.9 11.4 15.8 12.1 8.5
No. of Loans 1,155 1,820 1,166 519 259
% Loans 21.0 33.1 21.2 9.4 4.7
3,907,570,810 8,452,698,948 5,252,312,809 8,326,881,883 1,098,490 52,582,214,371
7.4 16.1 10.0 15.8 0.0 100%
176 246 80 39 42 5,502
3.2 4.5 1.5 0.7 0.7 100%
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 13
Table 4
Defeasance By Vintage, All Defeasance Vintage 1995 1996 1997 1998
$ YE 2006 Balance 399,078,430 281,150,890 2,386,972,119 9,295,670,362
% Balance 0.8 0.5 4.7 18.2
No. of Loans 11 22 250 1,142
% Loans 0.2 0.4 4.5 20.8
8,258,228,110 7,517,251,129 7,517,177,735 5,965,449,697 6,328,590,451 3,187,780,969 12,714,442 51,150,064,335
16.1 14.7 14.7 11.7 12.4 6.2 0.0 100%
1,324 893 659 543 473 183 2 5,502
24.1 16.2 12.0 9.9 8.6 3.3 0.0 100%
1999 2000 2001 2002 2003 2004 2005 TOTAL
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APPENDIX 2: CMBS TRANSACTIONS WITH 25% OR MORE DEFEASANCE Pool Name F1211 2000-1211 (1211 Avenue of the Americas) MSDWC 2000-1345 (1345 Ave of the Americas) MSDWC 2001-280 (280 Park Avenue) FTST 2000-4TS (Four Times Square) GSMS 2001-ROCK (Rockefeller Center) LTT 1998-1 (Library Tower, Los Angeles) MCMT 1999-C1 (Meristar Portfolio) STARW 1999-C1A (Starwood Hotel Portfolio) CMPTC 1999-ZC1A (Assisted Living Portfolio) NASC 1995-MD3 ASC 1995-MD4 LLL 1997-LLI PMCC2 2000-C1 TOTALS GMACC 1999-CTL1 NASC 1996-MD5 MSC 1997-XL1 ASC 1995-D1 CSFB 1998-C2 GSMS 1998-GLII JPMC 2000-C9 GMACC 1999-C3 CMAC 1998-C2 CSFB 1997-C2 CMAT 1999-C2 GMACC 2000-C1 ASC 1997-D4 BSCMS 2000-WF1 DLJCM 1999-CG3 MSC 1998-XL1 CCMSC 2000-2 FUCMT 1999-C1 DLJCM 1998-CF2 NASC 1998-D6 LBCMT 1999-C1 LBUBS 2001-C7 CSFB 1997-C1 GMACC 1999-C2 CSFB 1997-PS1 CSFB 2000-C1 LBUBS 2001-C2 DLJCM 1999-CG1 CDCMT 2002-FX1 CSFB 1998-C1 CASC 1998-D7 FUNCM 1999-C2 BSCMS 1998-C1 SBM7 2000-C3 COMM 1999-1 GMACC 1997-C2 TRIZE 2001-TZHA DLJCM 2000-CF1 ASC 1996-D3 DLJCM 1998-CG1 ASC 1997-D5 CCMSC 1997-2 GSMS 1997-GL FUNBC 1999-C4
Original Pool Balance $300,000,000 $450,000,000 $269,805,327 $430,000,000 $1,210,000,000 $200,000,000 $330,000,000 $541,328,908 $140,000,000 $534,749,065 $967,185,797 $1,426,717,068 $243,885,659 $7,043,671,824
Pool Balance YE 2006 $293,655,485 $425,311,667 $252,286,200 $403,146,993 $1,159,591,108 $174,905,342 $288,698,500 $457,201,594 $118,857,993 $53,405,555 $314,636,667 $265,907,238 $230,008,169 $4,437,612,510
% Pool Outstanding 98% 95% 94% 94% 96% 87% 87% 84% 85% 10% 33% 19% 94%
$385,982,625 $773,692,578 $754,531,157 $210,875,735 $1,919,275,078 $1,409,152,997 $814,388,116 $1,152,022,048 $2,891,308,796 $1,465,990,190 $775,180,294 $879,890,172 $1,403,292,505 $888,269,750 $899,289,205 $925,848,150 $738,733,448 $1,163,518,250 $1,107,680,439 $3,722,686,278 $1,580,080,849 $1,209,908,176 $1,356,228,736 $974,502,237 $262,057,850 $1,111,999,815 $1,319,080,829 $1,239,717,566 $637,487,900 $2,482,942,306 $1,245,617,634 $1,181,484,821 $714,739,121 $914,661,061 $1,311,153,573 $1,072,702,285 $1,440,000,000 $886,214,012 $782,586,994 $1,564,253,441 $1,785,756,555 $813,992,373 $977,099,000 $885,738,326
$77,033,216 $99,168,726 $306,354,783 $50,573,762 $1,458,450,277 $1,161,322,474 $556,387,802 $874,355,036 $1,759,401,999 $868,469,678 $670,772,784 $734,467,649 $533,867,766 $680,630,324 $754,304,602 $646,329,519 $662,913,211 $862,590,758 $875,443,858 $3,158,065,416 $1,163,524,830 $989,449,899 $352,287,403 $798,259,752 $48,828,737 $972,094,869 $1,190,358,585 $1,004,165,657 $585,994,742 $1,774,847,768 $971,476,101 $887,652,428 $588,567,604 $770,452,194 $1,089,071,166 $325,579,605 $680,406,264 $777,490,122 $259,592,260 $1,077,056,325 $1,279,111,320 $365,512,924 $324,299,107 $684,608,092
20% 13% 41% 24% 76% 82% 68% 76% 61% 59% 87% 83% 38% 77% 84% 70% 90% 74% 79% 85% 74% 82% 26% 82% 19% 87% 90% 81% 92% 71% 78% 75% 82% 84% 83% 30% 47% 88% 33% 69% 72% 45% 33% 77%
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Total Defeasance YE 2006 $293,655,485 $425,311,667 $252,286,200 $403,146,993 $1,159,591,108 $174,905,342 $288,698,500 $457,201,594 $118,857,993 $53,410,564 $314,636,667 $265,907,238 $230,008,169 $4,437,617,520 $64,473,836 $76,589,028 $202,750,000 $31,031,199 $754,506,272 $572,378,359 $273,186,411 $424,666,516 $853,330,127 $418,071,224 $304,324,555 $324,586,286 $227,563,119 $284,432,802 $308,220,788 $255,499,774 $258,032,918 $335,676,294 $332,621,391 $1,193,104,573 $432,254,807 $364,852,105 $129,233,689 $288,379,591 $17,419,205 $337,535,061 $413,054,429 $345,511,818 $200,762,102 $601,592,599 $328,577,655 $299,976,930 $197,864,511 $257,629,016 $359,228,817 $106,925,810 $222,379,955 $251,714,574 $83,572,416 $345,325,740 $406,549,668 $115,590,234 $102,188,015 $213,284,063
% Pool Defeased 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
84% 77% 66% 61% 52% 49% 49% 49% 49% 48% 45% 44% 43% 42% 41% 40% 39% 39% 38% 38% 37% 37% 37% 36% 36% 35% 35% 34% 34% 34% 34% 34% 34% 33% 33% 33% 33% 32% 32% 32% 32% 32% 32% 31%
Moody’s Investors Service • 15
Pool Name GMACC 1999-C1 MLMT 2002-MW1 FULBA 1998-C2 PMCF 2001-ROCK LBUBS 2000-C4 PMAC 1999-C1 HFCMC 2000-PH1 JPMCC 2001-CIB2 CMAC 1999-C1 GSMS 2003-C1 LBUBS 2002-C4 CSFB 2001-CK3 JPMC 1999-PLS1 ASC 1996-MD6 BACM 2003-1 CSFB 2002-CP5 GMACC 2000-C3 GMACC 1998-C2 BACM 2002-2 BACM 2000-1 DLJCM 1999-CG2 FUNBC 2000-C2 DLJCM 2000-CKP1 GMACC 1997-C1 SBM7 2000-C2 COMM 2000-C1 CSFB 1999-C1 CSFB 1999-C1 CMFUN 1999-1 JPMC 1999-C8 FUNBC 2000-C1 BSCMS 2002-PBW1 DLJCM 1998-CF1 GMACC 2002-C1 BACM 2001-PB1 LBCMT 1998-C4 GECMC 2000-1 CMAC 1997-ML1 GECMC 2003-C1 LBUBS 2002-C1 MCFI 1998-MC1 JPMC 2000-C10 BSCMS 1999-C1 GSMS 1999-C1 MSC 1998-CF1 LBCMT 1998-C1 JPMCC 2002-CIB5 TOTALS
16 • Moody’s Investors Service
Original Pool Balance $1,334,328,591 $1,082,600,759 $3,408,048,239 $908,278,773 $999,060,409 $704,764,604 $956,916,240 $961,696,439 $733,801,916 $1,611,350,146 $1,455,238,300 $1,126,966,710 $211,900,044 $895,196,535 $1,132,371,707 $1,185,313,661 $1,318,121,274 $2,530,361,727 $1,744,285,987 $771,922,442 $1,550,432,654 $1,147,819,332 $1,289,918,771 $1,696,984,278 $781,523,168 $897,940,215 $1,170,108,238 $1,170,108,238 $1,397,640,244 $731,516,500 $776,325,806 $921,174,883 $838,800,140 $710,057,789 $938,283,211 $2,025,590,706 $707,331,067 $848,482,929 $1,188,882,058 $1,242,867,925 $1,294,362,625 $740,083,871 $478,003,982 $890,585,735 $1,107,291,368 $1,727,817,629 $1,023,103,976 $106,397,175,110
Pool Balance YE 2006 $1,036,509,457 $992,050,871 $2,151,309,149 $804,249,672 $839,999,273 $510,022,210 $761,637,460 $849,014,198 $557,615,723 $1,550,694,973 $1,358,880,264 $903,207,106 $133,185,546 $323,323,438 $1,075,164,061 $1,099,701,236 $1,196,570,080 $1,900,163,542 $1,647,151,388 $559,222,431 $1,309,510,082 $961,178,971 $990,476,999 $647,887,524 $615,499,473 $738,462,796 $909,891,615 $909,891,615 $1,205,916,502 $490,515,910 $686,069,765 $845,675,570 $625,027,363 $650,143,455 $785,173,245 $1,542,567,588 $571,898,875 $577,614,328 $1,119,154,321 $1,019,055,733 $741,541,772 $599,655,677 $396,096,957 $571,680,887 $569,990,701 $964,350,742 $956,497,913 $78,002,689,859
% Pool Outstanding 78% 92% 63% 89% 84% 72% 80% 88% 76% 96% 93% 80% 63% 36% 95% 93% 91% 75% 94% 72% 84% 84% 77% 38% 79% 82% 78% 78% 86% 67% 88% 92% 75% 92% 84% 76% 81% 68% 94% 82% 57% 81% 83% 64% 51% 56% 93%
Total Defeasance YE 2006 $321,189,796 $306,305,120 $663,630,208 $248,042,655 $258,719,776 $156,826,139 $233,696,829 $259,240,442 $170,237,856 $470,030,492 $409,467,579 $269,976,074 $39,765,488 $95,902,606 $318,814,150 $325,355,101 $352,936,244 $554,834,796 $478,954,676 $161,635,366 $372,248,989 $273,098,134 $274,514,836 $178,537,131 $169,499,473 $201,415,188 $246,870,619 $246,870,619 $324,455,316 $129,678,727 $181,121,465 $222,035,428 $163,231,135 $169,622,766 $204,706,114 $401,737,430 $147,044,906 $146,801,860 $284,352,430 $257,992,901 $187,706,531 $151,313,546 $99,728,438 $143,301,814 $140,772,875 $237,343,053 $235,110,045 $25,803,121,442
% Pool Defeased 31% 31% 31% 31% 31% 31% 31% 31% 31% 30% 30% 30% 30% 30% 30% 30% 29% 29% 29% 29% 28% 28% 28% 28% 28% 27% 27% 27% 27% 26% 26% 26% 26% 26% 26% 26% 26% 25% 25% 25% 25% 25% 25% 25% 25% 25% 25%
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
U.S. CMBS: STRONG COMMERCIAL PROPERTY APPRECIATION FUELS DEFEASANCE
Moody’s Investors Service • 17
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